Apple engineers have already begun developing new security
measures that would make it impossible for the government to break
into a locked iPhone using methods similar to those now at the
center of a court fight in California, according to people close
to the company and security experts.

If Apple succeeds in upgrading its security — and experts say it
almost surely will — the company would create a significant
technical challenge for law enforcement agencies, even if the
Obama administration wins its fight over access to data stored on
an iPhone used by one of the killers in last year’s San
Bernardino, Calif., rampage. The F.B.I. would then have to find
another way to defeat Apple security, setting up a new cycle of
court fights and, yet again, more technical fixes by Apple. […]

Apple built its recent operating systems to protect customer
information. As its chief executive, Timothy D. Cook, wrote in a
recent letter to customers, “We have even put that data out of our
own reach, because we believe the contents of your iPhone are none
of our business.”

But there is a catch. Each iPhone has a built-in troubleshooting
system that lets the company update the system software without
the need for a user to enter a password. Apple designed that
feature to make it easier to repair malfunctioning phones.

The way the iPhone works today, when put into recovery mode you can restore the operating system without entering the device passcode. The only restriction is that the version of iOS to be installed must be properly signed by Apple.

I just tried it here with my old iPhone 6, which had been turned off for weeks. I powered it up, but did not unlock it. I put it in recovery mode, and then updated it to iOS 9.3 beta 4. Then it restarted. Now it’s running iOS 9.3 beta 4, and I still have not unlocked it. All my data is still on the phone — but it’s running a new version of iOS, without my having unlocked it.

What the FBI wants Apple to do is create (and sign) a new version of iOS that they can force the San Bernardino suspect’s phone to install as an update — and this new version of iOS will allow them to easily brute-force the passcode.

I think what Apple is leaking here is that they’re going to change this (perhaps as soon as this year’s new iPhone 7), so that you can’t install a new version of iOS, even in recovery mode, without entering the device’s passcode. (I think they will also do the same for firmware updates to the code that executes on the Secure Enclave — it will require a passcode lock.)

If you do a full restore, you can install a new version of the OS without the passcode, but this wipes the data. See also: Activation Lock, which allows you to bypass the passcode to completely wipe an iPhone, but requires you to sign into iCloud before you can use it.